Gwalia administrators get $125m to settle damages September 05, 2009
Article from: The Australian
TOP-TIER global audit firm Ernst & Young has agreed to pay the administrators of West Australian goldminer Sons of Gwalia $125 million, to settle a $1.3 billion damages case based on an inadequate audit of the miner.
Sons of Gwalia, which turned out to have forward sold more gold than it could actually produce in a bid to improve its financial accounts, collapsed in 2004.
The settlement is one of the biggest in Australian corporate history, dwarfing the $50m that the partners of Andersen agreed to pay the liquidator of HIH Insurance after it collapsed in 2001.
In a report to Sons of Gwalia creditors in 2005, Ferrier Hodgson said Ernst & Young had breached its duty to the miner when it failed to identify or warn about the lack of "proper or effective internal controls over the treasury operations to allow exposures to be ascertained and controlled" and that "the books were inadequate to enable the exposures and resulting profits and losses from the treasury operations to be ascertained and audited".
The settlement will be subject to a vote by creditors at a meeting on September 23, although they are unlikely to rebel unless they think the payout should have been higher. They will be sent details of the proposal next Tuesday. If approved, it will go into a pool with a previous payout of $53m made by the company's directors and insurers to compensate creditors for the consequences of the board's actions.
A statement from Ferrier Hodgson yesterday said the new agreement "will allow for a significant dividend to be paid by December 2009 and will assist in bringing this long-running administration to a close".
The payment by Ernst & Young will be covered to some extent by insurance but the scale of the payout may put upward pressure on premiums for professional liability insurance.
A statement from Ernst & Young's chief executive for Oceania, Gerard Dalbosco, said the decision to settle "is a commercial one and after four years of litigation we want to bring this matter to a close". The two opposing parties went into mediation about a month ago.
The latest audit case is one of several landmark legal actions that the defunct Leonora miner's creditors have been involved in and won. The best known is the Margaretic case, run in WA, which established that if shareholders could prove they had been misled before buying shares, they could rank equally with other creditors of a collapsed company.
The case, named after shareholder Luca Margaretic and taken to the High Court, has caused some upheaval and protest among lawyers and liquidators because of a perceived extra class of creditors of defunct companies. However, the High Court has allowed the verdict to stand.
That means the shareholders in Mr Margaretic's group, who bought shares after a certain date on the basis of statements made by the company's management, will be able to share in the administrators' proposed dividend.
http://www.theaustralian.news.com.au/business/story/0,28124,26027449-36418,00.html
FYI,What do you think?
I can see comparisons as many other SHs might, but I am not qualified to make judgements.
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